How running an Airbnb is like managing a product
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As a product-minded person, running an Airbnb has been a really interesting experience. I have zero experience with product management for consumer products, and all of my professional experience has been in B2B. Now that my wife and I have been running an Airbnb out of our house for the past two years, it’s been interesting to reflect on how we’ve been successful and managed to qualify for superhost status four times in a row, and maintain an average rating north of 4.95. I’ll skip most of the financial discussion in this article, but if you’re interested in that element, check out my musings on the tax efficiency of running an Airbnb from last week!
Discovering the unmet need
Airbnb is a fascinating platform. When you get down to it, it’s essentially a democratization of the hotel industry. In any given location, you’re likely to find an Airbnb or Vrbo or other home-sharing listing of some sort. There are hundreds, if not thousands of listings across San Francisco and the greater Bay Area alone. Compare that to hotels, which are fundamentally high-density, and thus fewer and further between, and focused around specific points of interest, or central locations where people tend to congregate. Airbnb operates in the same markets as these hotels, but also in the white space between them.
When we bought our home, we bought it with the intention of using a part of the house as an Airbnb. I expect we’ll eventually take it off the market as we grow into our home, but we opted to buy something that was a little larger than we needed because it seemed well-designed for the additional revenue potential. However, as I mentioned in my last post, I procrastinated a lot on getting the space listed, because, in my mind, I was only really thinking about my use case for Airbnb. As an Airbnb guest, I’m usually a tourist on vacation in a city that I don’t really know, where I want to be in a central location, close to public transportation (before Covid, obviously), and I’m generally optimizing for finding a low cost alternative to a hotel. In my mind, I thought our location would be a detractor, since it’s a bit off the beaten track, not close to any major tourist destinations, and not very close to public transportation.
What I didn’t anticipate, and was pleasantly surprised by, was the unmet need that I discovered when we finally listed the space. It was surprisingly easy to get bookings through Airbnb. In spite of my presumption that location would be a detractor, location was actually the primary reason we would see bookings in many cases. I frequently field questions before booking asking about proximity to specific locations, often from people visiting family members that live nearby (before the pandemic, new grandparents visiting their close-by grandchildren was a surprisingly frequent demographic for us). This also seems to be the primary reason we don’t get bookings. We lose out sometimes because we’re close to where people want to be, but not close enough (or there’s another comparable listing somewhere even closer).
In the cases where we have had tourists who were hoping for a more central location, we often see it reflected in our reviews (some of our lowest ratings have come from tourists from other countries who don’t know what to expect from our location). Tourists actually end up often being the toughest customers sometimes, because they’re a bit less respectful of the space (coming down to clean and finding the place trashed with pizza boxes and littered with fake eyelashes was one of my less enjoyable cleaning experiences). It’s worth remembering that Airbnb does have a two-sided review system, and I will generally give folks the benefit of the doubt, though some experiences go a little over the top. We had one couple who planned to arrive in the afternoon, but didn’t actually show up until around 11pm, and were so drunk that they couldn’t locate the lockbox, and after I came out to show them where it was, I ended up having to come back out because they couldn’t figure out how to open it (they were apparently too drunk to enter the correct code). Not an ideal experience, but fortunately, those types of guests tend to be few and far between.
Achieving product differentiation
One of the biggest differences between a hotel room and an Airbnb is that hotel rooms in a particular hotel are generally completely undifferentiated. In the words of Malvinia Reynolds, they’re all just “little boxes all the same.” Airbnbs are the antithesis of this, and can have as much differentiation, and character, and uniqueness as you want.I attribute a significant amount of our success to my wife’s exceptional sense of design. She did all the work behind the design aesthetic and sourcing the furniture (which comes predominantly from places like Wayfair and Joss & Main), and the space is decidedly Insta-worthy. We also paid a small fee (around $150) for professional photography when we originally listed our space on Airbnb, which was one thousand percent worth the cost. The photos came out surprisingly well, and they get a “Verified by Airbnb” badge on the site, which gives prospective guests added confidence that the product they’ll get is exactly what they see online. I think that experience of what-you-see-is-what-you-get is critical for ensuring consistent five-star reviews.
We’ve also been able to differentiate in terms of who we allow to book, and what we offer. We have two dogs, who can be pretty loud, and we live directly over the Airbnb space, so we know there’s going to be some noise. For us, it was a natural decision to let guests stay with pets, because they’re a) likely to be more understanding of the noise that our own dogs cause and b) it drives down the pool of listings that we compete with on a regular basis. Unsurprisingly, the vast majority of our guests bring pets, and it helps us ensure a high occupancy rate for our space. That said, this is a double-edged sword, and we’ve been reminded of that by the adorable golden retriever that ate the corner of the bed frame (non-trivial fabric to match), or the corgi who felt the need to vomit all over the bed sheets.
We also generally offer a lot of the bells and whistles that Airbnb allows, like Instant Book, relatively flexible cancellation (which helps us attract business travelers), but we also offer discounts for long stays and a non-refundable option that de-risks our revenue stream. All of it makes our listing more attractive to particular subsets of Airbnb searchers.
Pricing is still hard, even after a year
One of the biggest challenges of running an Airbnb has been to figure out an appropriate price point. Rental pricing is always an interesting challenge, especially for hotels, because you have a product that expires rapidly. Once a date has passed with a room unbooked, there is no way to recoup those lost earnings, so it’s easy to feel like the best option is to drop prices dramatically as the dates get closer. However, as I’ve bitten my tongue and held on tight, I’ve found that more often than not, we still have room to move our prices up. Throughout the pandemic we’ve definitely lost a lot of viable rental days, because we space out reservations by three days on either end, so we’ve compensated by increasing prices to maintain similar income levels. However, this has required a lot of experimentation to find an appropriate price point.
What we ended up doing to solve this for ourselves was to use a price optimization platform called Wheelhouse. Wheelhouse allows us to set a base price, but then does the work of factoring seasonality (throughout the year, as well as between weekends/weekdays), as well as dropping prices as dates get closer, and automates the process of updating prices with Airbnb. I’ve generally found that Airbnb’s own pricing recommendations are outrageously low, and if we actually followed them, we’d be leaving a huge amount of money on the table (30-40%). Even the highest recommended prices on Wheelhouse have often ended up seeming low. That said, it helps that we’ve maintained extremely positive reviews on the platform, which, in turn, likely allows us to increase prices over time, without sacrificing demand. The other major benefit to Wheelhouse is that it’s made it easy to customize minimum stay requirements. For example, lots of guests may want to stay from Friday to Sunday, which is two nights, but since weekdays usually don’t drive as much willingness-to-pay as a weekend, we can enforce longer minimum stays during the week, but still allow two-night stays on weekends to capitalize on both patterns.
As another fun aside on pricing, Airbnb has taught me that everything is negotiable. Every now and again (though not extremely frequently), we’ll be asked to give discounts on prices, or someone will suggest that they were hoping to pay a particular price (usually for longer stays). We definitely have the ability to offer special pricing, and in many cases, will offer special pricing, so long as we’re not being asked for an aggressive discount. If you asked me for 5-10% off on any particular reservation, there’s a good chance I’ll say yes.
Customer obsession is key
As with any product, you end up with the best possible outcome when you optimize for the end user, and obsess over how the customer experiences your product. For us, that manifests in the little things. A chalkboard with a personalized welcome message when they arrive. Well-stocked amenities, snacks, coffee, and other touches that you might expect from a hotel. The amenities are also a bit of a blend between bulk-sourced from Costco, as well as some hand-selected items like Rickaroons (Grant, you can just owe me one on this plug). We also leave dog treats for guests with canine friends. Premium internet and streaming services even beyond what you’d see in a hotel has won us business travelers. Self check-in, so guests who want to interact with you can opt into that, but guests who prefer to be left alone never have to see the host.
I’m also a believer in thoughtful, expedient communication being a key element of the customer experience. It doesn’t take a lot of time on my part, but when a customer request or question comes in, I usually respond within 5-10 minutes, and definitely within an hour. I’m willing to go above and beyond when potential guests ask for advice or local tips, because it creates a premium experience for them.
And sometimes you have to sacrifice a little bit. My wife and I spent a week in relative sweltering heat with guests who liked to turn the heat up to 90, presumably to make the guest suite heat faster (worth noting: thermostats don’t work that way). I definitely looked into adding a separate thermostat zone after that one. All for the sake of the customer experience.
At the end of the day, we’re always iterating
Like any great product, the first thing that you put out isn’t the end state. It’s relatively rare that we get actionable feedback from guests, but when we do, we take it seriously, and make changes to our product. As some concrete examples:
We started with a lockbox to get the key for check-in/check-out, but later moved to a smart lock, for convenience, and the security of being able to provide personalized codes
One guest commented about the corners of the rug curling over, so we added stiff rug pads to keep them flat
Another guest noticed that we didn’t have a full-length mirror, so we added to the suite (amazing that it took almost two years for this feedback to come to us)
Compostable French Roast K-cups (this was a very specific request from a frequent, repeat guest that took a couple tries, because we didn’t get the compostable part right, the first time)
None of this takes a huge amount of effort on our part. All told, I probably spend less than an hour per week operating our Airbnb, but through it, we’re able to command a premium price for the area, and have racked up over 100 positive reviews, and continues to be a fun side hustle for me.